Incentives push card holders to debt

The Jakarta Post ,  Jakarta   |  Mon, 04/28/2008 11:42 AM

Credit card holders remain ill-informed on the potential dangers of overspending with credit cards amid high interest rates and a kaleidoscope of deals designed to bury customers in debt, an expert says.

During a visit to a shopping mall, Hernest Prisma, a private course teacher, was lured into a designer shoe store by a 25 percent discount offered to holders of a certain credit card he happened to have in his wallet.

Moments later, and Rp 400,000 (US$44) lighter, he walked out again with a shadow of doubt cast over his trendy footwear.

"Actually I don't need new shoes, even if they're designer ones," the 24-year-old told The Jakarta Post last week.

Hernest is one of many shoppers tempted into incurring debt by discounts, reward points and promotions offered by credit card companies to encourage customers to garner hefty overdrafts.

He said the offers lured him into buying unnecessary goods from retailers in cooperation with credit card companies.

"I don't actually need the (more expensive) brand. Although using the credit card allows me to buy designer goods at cheaper prices, the fact remains that they're still more expensive," he said.

Over the past several years, credit card issuers have been increasing aggressive in targeting customers. Bank Central Asia, one of the country's biggest players, recently collaborated with France-based retailer Carrefour to offer discounts.

Bank Indonesia (BI) announced a 27 percent increase in credit card transactions over the last two years, summing up to Rp 72.77 trillion (US$8 billion) in loans incurred by more than nine million cardholders in the country as of the end of last year.

With a large number of issuers offering a range of deals, many have registered for more than one card.

"When a company offered big discounts for dining at various restaurants, I immediately applied for the card," said Katarina Devi, an employee of the human resource department at a state-owned company, and holder of three credit cards.

"There are so many restaurants that offer discounts when I use my cards. I am tempted to try out their new menus."

Handi Irawan, a marketing consultant, said the city's goods and service providers had been playing their cards right to meet the characteristics of their consumers.

"City consumers are impulsive buyers and make purchases that give them instant benefit. They also prefer brand names or non-locally made products," he said.

However, many holders have become overwhelmed by mounting debt and have struggled to pay high interest rates.

BI reports showed credit payment failure increased by more than 67 percent from 2006 to 2007.

Financial expert Safir Senduk said misperceptions on credit cards were to blame.

"The wrong mindset is that holding a credit card gives you more money, when in fact it does not. Having a Rp 10 million limit doesn't mean you have a 10 million deposit somewhere out there," he told the Post.

Safir said cardholders should keep in mind the cards were an instrument for customers to owe money and eventually pay interest.

For routine users, including those who use the cards to pay for daily needs while waiting for payday, or those who are just plain spendthrifts, he suggested settling the debts every month.

"But in any case, people should be very careful to consider the risks and to plan ahead." (dre)

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